Mania Stocks and the Large Portfolio

Unless you’ve been living under a rock you probably have heard about the hype and hyperbola around GameStop stock mania.  Post’s on how this situation unfolded are a dime a dozen, so I’m not going to rehash that more then a bare minimum.  No I really want to talk more about mania stocks, play stocks, and the large portfolio.

A Brief Intro to Meme/ Mania Stocks: GameStop

A detailed introduction of the GameStop situation can be found here.  In essence the stock took off in price with an expectation to continue to do so for a few days.  Going from 4 dollars a share at one point all the way to 400.  The other side of the expectation was that the stock would return to 4 dollars within a short period.  A few other stocks, AMC theaters and Blackberry, also were caught up in this mania. 

My Investing Style, Slow and Steady

Now for those who have not been reading long, I am an index investor.   I hold a large portfolio as I am financially independent although not to my retirement target financial number.  I also firmly believe that trading on emotion leads to bad results, something studies support.

My Play Portfolio

However, I have also always been clear I hold a play portfolio.  Essentially a small number of funds invested in individual stocks that I feel will outperform.  Usually these are long term bets.  This play portfolio for reference is less than half a percent of my assets.  It doesn’t even show up in my asset allocation.  More on that later.

That play portfolio is more of a psychological tool to keep me from playing with the large portfolio.  I essentially have a segregated pot of money and that’s it.    Typically it under performs the rest of my portfolio by a wide margin.  Which brings us to the mania stocks.

Waking up to the Mania

I first got wind of what was going on with GameStop on Monday January 25th.  At the time GameStop was priced at 65 dollars and still on an upward trend.  I watched the stock through Thursday of that week before getting a bit of remorse that I did not jump in earlier.  I could have increased that 65 dollar per share to 300 something.    So I decided to do something about it.

No I didn’t buy GameStop.  Inherently I understood it would shoot up and shoot down quickly.  Without information on exact short positions I knew there would be little to no warning on momentum would change.  At 3xx a share run up from 4 dollars, that was a game <pun intended> I was not prepared to play.

The Other Meme Stocks: AMC and BB

So I looked at the other mania stocks.  Significantly below their first run up they had much less limited downside.  AMC at the time was at 12 dollars.  If I assumed worst case scenario it fell to 3-4 dollars a share, which is my assumption of intrinsic value now that the company was bailed out by this mania, the potential down side was no more then 2/3 of the investment.  Perhaps the mania would continue to spike this company’s value.

Blackberry at the time was 17 dollars.  Again based on my own intrinsic analysis I suspected a value between 10-12 dollars.  So only a 1/3 of my investment at risk, weighed against a potential for significant upside if the mania of these meme stocks continued.

Investing .2% of My Portfolio in Mania Stocks

So I bought shares.  Not much mind you.  I didn’t use my whole play portfolio so I would estimate combined they represented .2% of my portfolio.  Teeny Tiny.

We will pause here to diverge for a second.  Why such a small investment?  Frankly you should never invest in what was clearly speculation with more money then you are willing to lose.  Those people that bought GameStop at 300-400 and hung on now have lost 3/4 or more of what they invested in a week.  If you bought with a large portion of your account you could see your hard work from years go up in smoke in a week. No thank you.  Meanwhile, had either stock gone to 0 I could sleep well at night.  Again more on that later.

Refresh, Stare at Screen, Refresh

So I bought these small amounts of stock and I began to watch them on my computer.  Refreshing about everything 10 minutes to see their prices… Not a healthy way to spend my day.

2 days later I began to get nervous about AMC as I saw a recession in short interest and sentiment about the stock begin to disappear in the media.  So I sold it for a 7% profit.  I sold a bit early frankly, I could have made 20% at the later run up.  Then again that stock is now significantly down so my instincts were fairly good about bailing.

I held Blackberry meanwhile for a whole week.  Eventually giving up and selling with a nominal loss of a few hundred dollars.  The stock had settled in my intrinsic value range so I did not expect it would lose anymore.  I guess there was still a chance it could have risen on the mania, but there was another push that led me to sell.  A much stronger reason and learning from this whole affair.

Chasing Mania is Not a Healthy Way To Spend My Time

Let’s go back a paragraph or two.  I noted I was refreshing these stock prices every 10 minutes.  This type of hyper attention isn’t healthy.  Worse still it’s not really productive…

Insignificant Impact

You see if I invested less then .1% of my wealth in Blackberry then what was my best case scenario?  The stock doubles and it’s .2%?  A nearly impossible 10x move in Blackberry (BB) and I’d hit 1% of my portfolio.

Conversely the overall market daily moves are say 1-2% on a normal day.  As I was checking BB on my trading platform of choice I couldn’t help but notice just that single portion of my portfolio balance held at this broker was moving every few hours multiples of my entire position in Blackberry.  Here I was bending over backwards for a roll of the dice on a trivial amount.  That’s when I realized the whole thing was just not worth it and sold the final position.

The Larger the Portfolio, the Less Value in Taking a Speculative Bet

So I guess what I’m saying.  There comes a point on your journey to Financial independence when mania stocks are just not worth your time.  You’d be a fool to take a large position in them.  And it’s a waste of your time to take a small one.  You are better off investing along with your standard risk tolerance.  

Play Portfolio Lives On, But No Speculation

Now, I did not kill off my entire play portfolio.  To be honest these are long term plays that I invested in some cases years ago.  That also means they are not really speculative plays.    But I did decide to back off wasting too much time determining where to move those funds instead.  The money from Blackberry and AMC went right into a total market index fund.

Other then follow the general story to it’s conclusion as a student of the market, I have stopped watching individual stock price movements again.  Back to my normal habit of logging into my accounts once a quarter to evaluate any rebalancing needs.

Did you invest in any of the mania stocks?  Was it worth the effort?